Global Debt Soars Again – ZeroHedge – May 30, 2023 – Excerpts:
Global debt levels soared by $8.3 trillion in the first quarter of 2023, climbing to $305 trillion, nearly the record high set in the first quarter of 2022, according to the Institute of International Finance. This means almost 335% of GDP.
Rising debt is a burden on growth, and soaring public debt means higher taxes, weaker productivity and declining real wages as governments push inflationary policies to try to dissolve part of their enormous indebtedness.
Public debt is not a reserve asset for the public sector, it is a negative factor that crowds out investment and credit and erodes purchasing power from families and earnings from businesses as taxes rise. To make public debt a reserve asset it would have to generate real economic return, just as is the debt of private businesses used for solid investments. However, governments use increasing debt for current spending with no real economic return, and this leads to lower growth trends and loss of purchasing power of its issued currency.
Private debt is paid by families and businesses, but public debt is also paid by the private productive sector. Therefore, the impact on the pattern of growth, job creation and investment are significantly more negative when public debt rises.
There is no such thing as public debt. We pay it, always. With higher taxes, higher inflation, or larger budget cuts, maybe all at the same time.
Global markets have entered a perverse incentive mechanism where consensus investors favour rising public imbalances expecting central banks to implement quantitative easing afterward….
Rising debt means gold remains the only de-correlated and safe asset in an environment where currency destruction is likely to continue.…
Governments are not going to reduce deficit spending, and this means that public fixed income may be the riskiest asset for investors in an era of inflationism...
The inflationist policies that have been modestly implemented since 2009 are going to be accelerated. This will not be pretty if it leads to a prolonged period of stagflation. Stagflation does not create multiple expansion and equity booms. It is bad for fixed income and equity markets.
This is the consequence. Record debt, weaker growth, and inflation.
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